Explanation on rules for temporary free depreciation 2013

Publication date 05 July 2013

On July 2, 2013, the previously announced amendment to the Implementation Regulation on Free Depreciation 2001 was published. This amendment allows businesses making new business investments between July 1, 2013, through December 31, 2013, to immediately depreciate up to 50% of the acquisition or production costs.

Most important change
The new rule is based on the rule that applied to investments made in 2009, 2010 and 2011. The new rule on temporary free depreciation took effect on July 1, 2013, and will end on December 31, 2013. The rule is available to corporate income tax taxpayers and businesses subject to personal income tax. Under the new rule, the depreciable basis in the second half of 2013 is maximized at 50%. Contrary to the previous rule on temporary free depreciation, this time the election to freely depreciate up to 50% of the acquisition or production costs can only be made in the year the obligation was entered into or the production costs were incurred, i.e. the second part of 2013. Depreciation in subsequent years must be on the basis of ‘ordinary’ depreciation methods. In the past, investments could be freely depreciated over the duration of their useful life. How this ordinary depreciation should be calculated has not been specified.

Additional conditions
The rule is subject to the condition that the business asset must be taken into use before January 1, 2016. As was the case with the rule for temporary free depreciation in 2009, 2010 and 2011, it is now also possible to defer the date by which the business asset must be taken into use, if the taxpayer can show that the delay was due to special circumstances. If a business asset was expected to be taken into use before January 1, 2016, and was freely depreciated, this free depreciation will have to be reversed if the business asset was not taken into use before January 1, 2016. The free depreciation will also have to be reversed if the intended use of the business asset changes before January 1, 2016, to such an extent that it no longer meets the condition of the rule.

The Implementation Regulation on Free Depreciation 2001 is in line with the statutory rules on free depreciation. This means that the free depreciation on the business asset before it is taken into use cannot exceed the amount paid.

As was the case with the old rule, the following business assets cannot be freely depreciated:
·        buildings;
·        houseboats;
·        motorbikes;
·        motorcycles;
·        cars, with the exception of very fuel efficient cars;
·        intangible assets;
·        animals;
·        public roads and paths;
·        business assets primarily intended to be made available to third parties, with the exception of business assets primarily used for short-term rental to successive lessees;
·        business assets freely depreciated on other grounds.

In principle, cars are excluded from the list of business assets to which the rule for temporary free depreciation applies. However, an exception has been made for very fuel efficient cars. In contrast to the old rule for free depreciation, the maximum allowable CO2 emission for cars to be regarded as very fuel efficient has been tightened in order to meet the standards for 2013.This means a reduction to 88 grams per kilometer for cars with a diesel engine, and 95 grams per kilometer for cars without a diesel engine.

The rule for temporary free depreciation can only be applied to ships if the profit – at least until January 1, 2023 – is not determined by application of the tonnage regime.